4.5 The four Ps - product, price, promotion and place Flashcards
Product
The end result of the production process sold on the market to satisfy a customer need
Consumer durables
Manufactured products that can be reused and are expected to have a reasonably long life, such as cars
Product life cycle
The pattern of sales recorded by a product from launch to withdrawal from the market
What are the first 3 stages of the product life cycles
Introduction
Growth
Maturity or saturation
Introduction
The product has just been launched after development and testing.
Sales are often quite low to begin with and may increase only quite slowly
Growth
Rapid volume increase due to better awareness and expansion of distribution channels
Starts to be profitable due to economies of scale in production and marketing
Competition begins becoming attracted to the market
Reasons for declining growth
Increasing competition
Technological changes making the product less appealing
Changes in consumer tastes
Saturation of the market
Maturity or saturation
Sales may begin to peak/stabilise (no significant changes)
Achieve highest market share, while competition continues to pour into the market
Companies will employ price reductions, product differentiation and extension strategies very aggressively to protect their market share
Extension strategies
Marketing plans that extend the maturity stage of the product before a brand new one is needed
Types of extension strategies
Adding features to the original product
Repackage a product
Discount the price
Rebrand
Sell into new markets
Advantage adding features to the original product
Can usually be developed and marketed more quickly - and at lower cost - than a completely new product
Limitation of adding features to the original product
The basic original product is still ageing and at maturity/decline so consumers may not ‘buy into’ a slightly revised product
Advantage of repackage a product
Relatively cheap and quick method
Disadvantage of repackage a product
Consumers may quickly realise the product is the same and feel that they are being misled
Advantage of discount the price
Lower income consumers can now afford the product = product promotion might actually target different market segments
Disadvantage of discount the price
Impact on long term image of the brand and the company - better to replace the product earlier to avoid discounting
Advantage of rebrand
Opens up new market segments. Can be presented as a substantially ‘new product’
Disadvantage of rebrand
Expensive - is this rebranding strategy really worthwhile if a product has the perception of being old fashioned and is shortly to be replaced?
Advantage of selling into new markets
Market development can increase sales especially if the product is not perceived as being too old or ‘mature’ in these markets
Sell into new markets
Product and promotion may need to be redesigned to meet local laws
Introduction price
May be high compared to competitors (skimming) or low (penetration)
Introduction promotion
High levels of informative advertising to make consumers aware of the product’s arrival on the market
Introduction place
Restricted outlets - possibly high class outlets if a skimming strategy is adopted
Growth price
If successful, an initial penetration pricing strategy could now lead to rising prices
Growth promotion
Consumers need to be convinced to make repeat purchases - brand identification will help to establish consumer loyalty
Growth place
Growing numbers of outlets in areas indicated by strength of consumer demand
Growth product
Planning of product improvements and developments to maintain consumer appeal
Maturity price
Competitors likely to be entering market - there will be a need to keep prices at competitive levels
Maturity promotion
Brand imaging continues - growing need to stress the positive differences with competitors’ products
Maturity product
New models, colours, accessories. As part of extension strategies
Decline price
Lower prices to sell off stock - or if the product has a small ‘cult following, prices could even rise
Decline promotion
Advertising likely to be very limited - may just be used to inform of lower prices
Decline place
Eliminate unprofitable outlets for the product
Decline product
Prepare to replace with other products - slowly withdraw form certain markets
Product life cycle and investment
Investment - capital spending which aims to return a profit - is likely to be heaviest towards the end of a product’s life cycle.
Newer replacement products will be needed to take over when the existing products cease to sell in sufficient numbers and profits are falling or non existent.
This time period required to research and develop new products will determine the timing of this new investment.
Product life cycle and profit
The profitability of products will vary considerably during the life cycle
High profit margins are most likely during the growth and maturity phase - but towards the end of the latter stage, prices might have to be made more competitive and this might start to lead to lower margins.
Product life cycle and cash flow
Cash flow is vital to business survival and ignoring the link between cash flow and product life cycles could lead to a lack of liquidity for the business.
Boston consulting group matrix
A method of analysing the product portfolio of a business in terms of market share and market growth
Low market growth - high market share: product A ‘cash flow’
A well established product in a mature market.
Typically the product creates high positive cash flow and is profitable.
Sales are high relative to the market, and promotional costs are likely to be low due to high consumer awareness
Product can be milked and profits used in other products
High market growth - high market share: product B ‘star’
Successful product as it is performing well in an expanding market.
The firm will be keen to maintain the market positive of this product
Promotional costs will therefore be high to help differentiate the product and reinforce its brand image
High income
Should become cash costs of the future when the market matures
High market growth - low market share: product C ‘problem child’
Consumes resources but generates little return
Future is uncertain
Requires a lot of promotion if it is new
Should have potential of selling
Low market growth - low market share: product D ‘dog’
Offers little to the business
Need to be replaced
When should the Boston Consulting Group matrix be used?
Analysing the performance and current potion of existing products
Planning action to be taken with existing products
Planning the introduction of new products
Issues with the Boston matrix
On its own it cannot tell a manager what will happen next with any product.
It is only a planning tool and it has been criticised as simplifying a complex set of factors determining product success
The assumption is made that higher rates of profit are directly related to high market shares - this is not necessarily the case if sales are being gained by reducing prices and profit margins.
Brand
An identifying symbol, name, image or trademark that distinguishes a product from its competitors
Brand awareness
Extent to which a brand is recognised by potential customers and is correctly associated wit ha particular product - can be expressed as a percentage of the target market
Brand loyalty
The faithfulness of consumers to a particular brand as shown by their repeat purchases irrespective of the marketing pressure from competing brands
Benefits
Higher market share
Premium pricing by keeping loyal customers
Demand is more price inelastic
Customers are not sensitive to price changes
Brand extension and growth strategies
Raises barriers to entry
New players find it hard to gain a market
Brand development
Measures the infiltration of a product’s sales, usually per thousand population
Brand value
The premium that a brand has because customer’s are willing to pay more for it than they would for a non branded generic product
Effective branding can lead to the following benefits
Promotes instant recognition of the company and product
Helps differentiate the company and its products from rivals
Aids in employee motivation - committed to the brand
Generates referrals from customers - especially using social media
Customers know what to expect from the company and products
An emotional attachment can develop between the brand and customers, increasing customer loyalty
Increases the value of the business above the value of its physical assets
Family branidng
A marketing strategy that involves selling several related products under one brand name
Product branding
Each individual product in a portfolio is given its own unique identity and brand image
Company or corporate branding
The company name is applied to products and this becomes the brand name
Own label branding
Retailers create their own brand name and identify for a range of products
Manufacturers brands
Manufacturer’s brands: Producers establish the brand image of a product or a family of products, often under the company’s name
Family branding benefits
Marketing economises of scale when promoting the brand
Makes new product launches easier
Limitations of family branding
Poor quality of one product under the brand may damage them all
Product branding benefits
Each product is perceived as its own unique and separate brand - unconnected in consumers’ minds with the parent company
Disadvantage of product branding
Lose the positive image of a strong company brand
Company or corporate branding
Similar point to family branding but applies to all products produced under the company’s brand name
Disadvantage of company or corporate branding
Poor quality of one product may damage image of company
Benefits of own label branding
Often cheaper than name brand products
Each own brand label appeals to different consumer groups and tastes
Often little spent on advertising
Disadvantage of own label branding
Consumers often perceive products to have a lower quality image
Manufacturer’s brands benefits
Successful branding by manufacturers establishes a unique personality for the product which many consumers want to be associated with - and will often pay premium prices to purchase
Manufacturer’s brands disadvantage
The brand has to be constantly promoted and defended
Importance of packaging
Protection
Attracting customers
Promotion and information
Differentiation and brand support
Factors determining the price decision
Costs of production
Competitive conditions in the market
Competitors’ prices
Marketing objectives
Price elasticity of demand
Whether it is a new or an existing product
Pricing strategies
Cost based pricing
Market based pricing strategies
Price leadership
Cost plus pricing
Adding a fixed mark up for profit to the unit price of a product
Penetration pricing
Setting a relatively low price often supported by strong promotion in order to achieve a high volume of sales
Market skimming
Setting a high price for a new product when a firm has a unique or highly differentiated product with low price elasticity of demand
Psychological pricing
Setting prices that take account of customers’ perception of value of the product
Loss leader
Product sold at a very low price to encourage consumers to buy other products
Price discrimination
Occurs when a business sells the same product to different consumers at different prices
Promotional pricing
Special low prices to gain market share or sell off excess stock - includes ‘buy one get one free’
Predartory pricing
Deliberately undercutting competitors’ prices in order to try to force them out of the market
Advantages of cost plus pricing
Price set will cover all costs of production
Easy to calculate for single product firms whether there is no doubt about fixed cost allocation
Suitable for firms that are ‘price makers’ due to market dominance
Disadvantages of cost plus pricing
Not necessarily accurate for firms with several products where there is doubt over the allocation of fixed costs
Does not take competitive conditions into account
Tends to be inflexible
Benefit of penetration
Low prices should lead to high demand - important to establish high market share for new products
Disadvantage of penetration
Profit margin might be very low
Prices will need to grow in the future and might be consumer resistant
Skimming advatantage
High profit margins that will help to pay for development costs of new product
Disadvantage of skimming
High prices might discourage consumers
High prices might encourage more competitors to enter the market
Psychological advantages
Prices reflect what consumers expect
Disadvantage of psychological
price level and demand for the products need to be constantly reviewed as consumer expectation can change over time
Loss leader advantage
Makes a loss on one product but more than compensated by profits on other products - perhaps complementary to the loss leader
Increases market share
Disadvantage of loss leader
Cheaper generic alternatives might be sold by rival firms so the profit making complementary products are not purchased form the loss leading business
Price discrimination disadvantage
Administrative costs of having different pricing levels
Customers may switch to lower priced market
Consumers paying higher prices may object and look for alternatives
Price discrimination advantage
Uses price elasticity knowledge to charge different price in order to increase total revenue
Price leadership advantage
Smaller businesses know what price they have to aim to set
Price leader may have lower unit costs so it remains more profitable than competitors even with low prices
Price leadership disadvantage
Can be perceived as being predatory
Only really operates effectively for products that are undifferentiated
Predatory advantage
Drives down prices to benefit consumers and likely to increase demand for the business
May reduce the number of competitors in the long term and increase monopoly power of the predator
Predatory disadvantage
If proven it is illegal in many countries
Consumers may try to find alternative products if the newly created monopolist increase prices in the long term
Promotional advantage
Attracts new customers who may continue to buy when price is restored to original level
Allows selling off of out of season stock
Disadvantage of promotional
If this method is used frequently, consumers may suspect that the higher non discounted price can never be justified
Lower prices might become established for the consumer
Promotion
The use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorship and public relations to inform consumers and persuade them to buy
Promotional objectives should aim to
Increase sales by raising consumer awareness of a new product
Remind consumers of an existing product and its distinctive qualities
Encourage increased purchases by existing consumers or attract new consumers
Reinforce brand image
Above the line promotion
A form of promotion that is undertaken by a business by paying for communication with consumers
Informative advertising
Give information to potential purchasers of a product
Products that consumer is unaware of
Persuasive advertising
Create a distinct image for the product
Little difference between products
Above the line (ATL) info
Use of mass media for promotions
Very wide reach, but also very expensive
Also called “pull promotions”
e.g. TV, radio, newspaper, magazine, outdoor, cinema, etc.
Below the line promotion
Promotion that is not a directly paid for means of communication but based on short term incentives to purchase
Sales promotion
Incentives such as special offers or special deals directed at consumer retailers to achieve short term sales increases and repeat purchases
Examples of sales promotion
price deals
loyalty rewards programmes
money off coupons
buy one get one free
Promotion mix
The combination of promotional techniques that a firm uses to communicate the benefits of its products to customers
What are the eight stage in deciding on a promotional mix
Decide on the image of the product
Develop a profile of the target market
Decide on the messages to communicate
Set an appropriate budget
Decide how the messages should be communicated
Establish how the success of the promotional mix is to be assessed
Undertake the promotional plan and the mix elements of it
Measure its success
Introduction promotional options
Informative advertising to make the customer aware
Sales promotion offering free samples or trial period to encourage consumers to test the product
Growth promotional options
Brand building and persuasive advertising
Develop brand loyalty
Maturity promotional options
Advertising to emphasise the differences between this product and competitors
Sales promotion incentives to encourage brand development
Decline promotional options
Minimal advertising
Benefit of internet marketing
Improved audience reach
Targeted marketing
Interactivity
Performance metrics
Speed of transmission
Disadvantage of internet marketing
Lack of skill
Time of investment
Negative feedback
Performance metrics
Security issues
Viral marketing
The use of social media sites to increase brand awareness or sell products
Guerrilla marketing
Use of unconventional, surprise, and memorable interactions in order to promote a product
Generally used by smaller businesses who have a smaller budget available for promotions
Uses smaller teams of promoters in a specific area, rather than through mass media campaigns or involving the use of traditional forms of media
Emphasises on attracting media attention and creating a good or memorable impression on the consumers
Benefits of Guerrilla marketing
Relatively low in cost and risk
Helps engage in networking with not only customers, but even other potential business partners as well, depending on how viral the campaign becomes
Disadvantage of Guerrilla marketing
Success depends highly on market research
